Abstract

The checking account is a legal arrangement between a bank and its customer in which the bank promises to pay items (checks) drawn by the customer according to the terms of the checking account contract. A bank's refusal to pay a customer's item makes it liable to the customer if the refusal, which is referred to as a dishonor, was wrongful. A number of distinct legal issues involved in a customer's action for wrongful dishonor remain unsettled. This Article will focus on and analyze two of the most important of these issues. First, the Article will discuss the types of losses or injuries for which the customer may obtain compensation in an action against a bank for wrongful dishonor under section 4-402. Second, this Article will address the nature of the proof required to recover such damages. In addressing these questions this Article will examine the nature of an action for wrongful dishonor both at common law and under the statutory predecessor to section 4-402. It will also examine various taxonomic problems as well as the origin of the statutory language employed in the current version of section 4-402. Finally, it will discuss wrongful dishonor under section 4-402, and suggest some approaches that would clarify and unify the current divergent approaches of the courts.

Keywords

Banking industry, Wrongful dishonor of negotiable instruments, Compensatory damages